Decline in FDIs – a serious issue needed to be dealt urgently

Decrease in foreign exchange inflows is a very serious issue that requires immediate attention of our Government officials and Ministry of Finance. According to a recent survey from State Bank of Pakistan, foreign direct investment and portfolio investments have decreased drastically in past seven months. The Foreign Direct Investment is one of the key factors of economic growth.

Importers and investment analysts have predicted that this decline in FDIs will continue due to the political turmoil and slow economic environment. The SBP data showed that there is a steep decline in foreign investment during Jul to Jan period and it has reached to the level of below $1 billion dollar as compared to $5.4 billion in fiscal year 2008. No improvement in this situation has been forecasted in the near future. The main reason for this situation is that there is no attraction while at the same time deteriorating economic and political conditions are also worsening the situation.

Foreign investors are also bit hesitant to invest due to a panic like situation in the stock market. The SBP data also depicts that up to Feb, 2011 foreign inflows and outflows were $768 million and $571 million respectively and $179 million was available as portfolio investment. The FDI showed a negative trend in recent past years; it has reached to the level of $2.150 billion in FY10 from the level of $5.41 billion in FY08.

According to the analyst and experts on the subject matter, this rising decline in FDIs is a serious issue which needed to be tackled by the government on urgent basis. These FDIs are one of the big sources of foreign exchange in the country. There are no attractions available to the foreign investors, moreover, recent bombings in Pakistan is another major reason of this decline.

The GOP has announced on several occasions the privatization of public sector entities like Pakistan Steel Mill, Pakistan Railways and Pakistan International Airline. This may attract foreign investors, however, this is not considered to be right time for taking these privatization measures and steps.

The Government of Pakistan should take immediate measures and develop serious strategies to sustain these FDIs.